E-commerce tool of future, good for SMEs

It is clear that the Internet is becoming a dominant factor in urban life. With a rising Internet-savvy population, sending and receiving emails, browsing news and information, logging on to social networking websites and watching videos online is becoming a part of everyday life in India.

In addition to enriching individual lives, the Internet has also created new opportunities in online marketing for businesses such as search engines, portals and online marketplaces. By investing just a small amount of money and manpower, firms are able to access potential customers across the world via the Internet and compete with multinational firms on fair terms. But how should a business make its choice in the face of all these different marketing options?

Banner ads are perhaps the best-known online channel. Banner ads are usually placed in the most prominent place on a Web page. If well designed, they can catch the attention of Internet users. With the rising popularity of rich media in recent years, many banner ads are embedded with an audio effect, animation, video or interactive features, allowing advertisers to create the so-called “wow effect”. A downside, however, is that banner ads cannot always reach the advertiser’s target audience, and they tend to have a high exposure rate without a correspondingly high click-through rate.

The emergence of search engine marketing complements the inadequacy of banner ads. Search engine marketing services, such as AdWords provided by Google, offer a pay-per-click fee structure, where advertisers only pay when an Internet user actually clicks on an advertisement. In other words, the more clicks an advertisement receives, the more the advertiser pays. Advertisers bid on keywords that their target customers will likely use as search terms when they are looking for a product or service. Unlike banner ads, which may be shown on unrelated Web pages, search engine marketing shows an advertisement only on designated search results pages based on the keywords chosen by the advertiser, so they are highly targeted. In this way, advertisers can be assured that the people viewing or clicking the ads are their target audience and therefore potential customers as well.

Search engines are good for mass marketing and accessing individual consumers but for advertisers there are pitfalls. A search engine’s traffic is general and there is no budget guarantee, so costs can accumulate without any reasonable assurance of sales. There is also a serious global issue of click fraud, whereby competitors click repeatedly to increase your pay-per-click advertising costs. At this time, there is no known solution that can eliminate 100% of click fraud. A separate problem is the need to build and maintain a website, which can be an additional burden for small companies that might not have the resources or budget for this.

Search engines crawl the Web but their keywords are usually bought on a per country basis. If you are a supplier in India wanting to sell your goods in the UK, you could buy a few keywords on a search engine targeting the UK. But if buyers in the US, Australia or Europe are also your potential customers, you will have to allocate a separate budget for each market. What if your target customers are not from the mainstream market or if your products are not being sold to consumers but to other businesses? E-commerce and specialized online marketplaces can be a good choice.

E-commerce means buying and selling goods and services via the Internet and it falls into three major categories. The first is business-to-business (B2B) e-commerce, which refers to trading activities between businesses, such as those facilitated by Alibaba.com. The second is business-to-consumer (B2C) e-commerce, which refers to the direct sales of products or services to individuals by businesses, such as B2C platforms like Amazon. The third is consumer-to-consumer (C2C) e-commerce, which refers to transactions between consumers. Popular auction sites such as eBay fall into this category. Online marketplaces like Alibaba.com target a highly specialized group of business people who are interested in B2B trade. They can provide Indian small and medium enterprises, or SMEs, with a cost-effective way to establish their presence on the Internet, promote products to potential buyers around the world 24x7 and interact with potential trading partners. A standardized supplier storefront on an online marketplace has many of the same functions as a corporate website and can be updated any time by the registered member. Besides aggregating a huge online community and providing buyer and supplier matching, a comprehensive e-commerce platform will also be equipped with real-time communication tools, trade resources, industry news, community message boards and forums and third-party services such as authentication and quality control. Because of their huge scale, these virtual marketplaces offer a one-stop solution for trade and can provide great benefits to users with limited or no investment.

Determine your market and target customer, assess the different online promotional channels and choose the one that fits you best—and you, too, will be enjoying the fruits of the Internet. I would advise SMEs getting started with online marketing to keep it simple and outsource what they don’t understand. The most important criteria in making the selection should be ease of use, return on investment and manageability. E-commerce is the business tool of the future and I encourage all Indian SMEs to embrace it. Make sure your business maximizes the benefits of the Internet by marketing through the right channels.

David Wei is chief executive officer of Alibaba.com. This is the first of an exclusive five-part series he is writing for Mint. Respond to this column at feedback@livemint.com